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Passive Activity Loss ATG - Exhibit 2.1: Rental Decision Tree

Publication Date - December, 2004

NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.


Table of Contents / Exhibit 2.2
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Exhibit 2.1: Rental Decision Tree

Is the Activity a True Rental?

Note: Losses are nondeductible unless offset by passive income. Refer to IRC 469(a) and 469(d).

Decision Tree

Is the rental owned in the same % as the business entity or it insubstantial in relation to the business, and are the two activities interrelated?

  • If yes, loss may be okay.  Refer to Reg. Section 1.469-4(d)
  • If no, does the activity fall within one of the rental exceptions in Reg. Section 1.469-1 T(e)(3)(ii)

Exceptions

  • Is the average use less than 7 days?
  • Is the average use less than 30 days with significant personal services? 
  • Are extraordinary personal services provided such that rental is incidental to services?
  • Is the rental is incidental to a non-rental activity?
  • Is the property customarily available to customers during defined business hours for nonexclusive use by customers?
  • Is the property provided to TP's 1120 or 1065?
  • If no, activity is a rental.  Losses are reported on Form 8582 line 3b and are nondeductible without passive income.

Does the TP materially participate in the activity?

  • If no, losses are reported on Form 8582 line 1b or 3b and are not deducible without passive income
  • If yes, losses are fully deductible. 

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